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403(b) Plan Documents: Tips on Completing Restatements

By John Iekel • April 03, 2018 • 0 Comments

With March 31 now behind us, there are now are slightly less than two years until employers with 403(b) plans must restate their plans under the first remedial amendment period (RAP). A March 28 NTSA webcast addressed another aspect of this deadline: the proper completion of restated documents.

In “The New 403(b) Plan Documents Part II: Don’t Even Think About Removing my Appendix!” PenServ Plan Services President Susan Diehl, built on her Feb. 28 webcast and offered information and advice on proceeding with restatements and handling the associated documents.

It is important, Diehl said, to keep in mind that:

  • Most employers are going from a four- to five-page document to one that is 15-20 pages. “The first thing they’ll notice is how much larger the document is and how many more pages they’ll have to complete,” she noted.

  • There are new items to complete that will need to be explained to the employer.

  • The administrative appendix is new, and “now is practically a requirement, and actually is considered part of the plan document,” according to Diehl.

  • The vendor attachment should always have been a part of the plan.

“Handholding will be a must!” Diehl said, arguing for hands-on involvement. Advisors, she said, should be educating their clients and making sure they contact their TPAs. And while talking to an employer regarding the adoption agreement, one should make sure that they understand that their choices should reflect what they do operationally.

Diehl reminded attendees about listings of required modifications (LRMs), which the IRS issues for any retirement plan for which a prototype/volume submitter plan is available, and which contain sample plan/adoption agreement language. Unique to 403(b)s, she said, are some LRMs that are not based on the law or regulations and are referred to as “program requirements.” Diehl remarked, “The only citation you’ll have for some features is in the LRM.”

The 415 Rule now includes an annual notice requirement, Diehl noted, and is mentioned in new plan documents. The annual notice requirement begins with the tax year after the employer restates their plan document – and the deadline is March 31, 2020. “Decide now how this notice will be distributed,” she said, adding that “best practice is to include it in the universal availability notice.”

Church plans are not sacred as far as the RAP is concerned. Diehl noted that before the restatement, it was very common to see, under a 403(b)(9) plan, participating employers that were:

  • steeple churches;

  • qualified church-controlled organizations (QCCOs); and

  • non-qualified church-controlled organizations.

But Diehl observed that the new pre-approved LRMs no longer permit this. However, there may be a providential ray of hope: she adds that legislation now before Congress would address that change and “have the ‘fix’ in it.”

The 20-hour/once-in-always-in rule is an additional area of concern. Diehl noted that in 2015, that in 2015 the Advisory Committee on Tax Exempt and Governmental Entities (ACT) suggested that the IRS address how the 20 hours per week and 1,000 hours per year rules work in “real-life,” practical operations. ACT also suggested that the communication should stress that employees excluded under the less than 20 hours per week rule must also be tested under the 1,000 hours standard.

How to treat employees who are rehired is problematic regarding the application of the 20-hour/once-in-always-in rule. Diehl said that some employers treated them as eligible even if they had severed employment and were subsequently rehired, while “others used the concept that an employee could again be subject to exclusion from elective deferrals after they were rehired following a severance of employment.”

Some clarity may be coming from the IRS, according to Diehl, who remarked, “apparently the IRS is working on guidance. It appears much more complex than we thought.” She said that the “IRS has agreed to a ‘replacement page’ to add the real meaning of this rule to the pre-approved 403(b),” and added that “Once IRS approves language, sponsors will be able to replace that language in your already approved plan documents. But she added the caveat, “We are still waiting on this guidance.”

But at least employers don’t need to be concerned about completion of the administrative appendix. Diehl said that is a function for TPAs, vendors and any other service provider such as a recordkeeper. “There will be some questions that an employer will have to weigh in on,” she said, “but it’s nice to know that some other party is involved.” She added that when the appendix is completed, an employer will know who is doing what and what those parties’ responsibilities are.

Accessing NTSA Webcasts

The NTSA webcast “The New 403(b) Plan Documents Part II: Don’t Even Think About Removing my Appendix!” is available on demand by clicking here.

Information on upcoming NTSA webcasts is available here.


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